Good morning, and good evening, ladies and gentlemen. Thank you for standing by for Yalla Group's Limited Fourth Quarter and Full-Year 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. After management's prepared remarks, there will be a question-and-answer session. Today's conference call is being recorded. Now I'll turn the call over to your speaker and host today, Ms. Kerry Gao, IR Director of the Company. Please go ahead, ma'am.

Hello, everyone, and welcome to Yalla's fourth quarter and full-year 2021 earnings conference call. We released our earnings earlier today, and the release is now available on our IR website as well as on our newswire services. Before we continue, please note that the discussion today will contain forward-looking statements made under the safe harbor provision of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements involve inherent risks and uncertainties. As such, our future results may be materially different from the views expressed today. Further information regarding this and other risks and uncertainties is included in our earnings release and our registration statements filed with the SEC. Yalla does not assume any obligation to update any forward-looking statements, except as required by law. Please also note that Yalla's earnings press release and this conference call include a discussion of unaudited GAAP financial information, as well as unaudited non-GAAP financial measures. Yalla's press release contains a reconciliation of the unaudited non-GAAP measures to the unaudited most directly comparable GAAP measures. Today, you'll hear from Mr. Tao Yang, our Chairman and Chief Executive Officer, who will provide an overview of our recent achievements and growth strategies. He will be followed by Mr. Saifi Ismail, the Company's President, who will give a brief review of our recent developments. Ms. Karen Hu, our Chief Financial Officer, will then provide additional details on the Company's financial results and discuss our financial outlook. Following management's prepared remarks, we'll open up the call to questions. Our Chief Operating Officer, Mr. Jeff Xu, will join the call for our QA session. With that said, I would now like to turn the call over to our Chairman and Chief Executive Officer, Mr. Tao Yang. Please go ahead, sir.

Thank you, Kerry, and thank you, everyone, for joining our fourth quarter and full-year 2021 earnings conference call. 2021 marks an important year for Yalla. Dedicated to our vision of fulfilling the evolving online social networking and entertainment needs of MENA users. We increased the diversity of our business and services to new levels. We continued to expand with an array of development, investment and collaboration initiatives and build a thriving Yalla ecosystem of seven products, as well as our exciting pipeline of new innovative products and features to provide our users with additional choices and a better experience while creating future revenue streams for our company. Before we turn to our business updates, I would first love to provide updates on the voluntary dismissal of the securities class action lawsuit Yalla faced recently. This lawsuit was filed against the Yalla in the U.S. in August 2021, based on assertion in short-seller reports, refuted by the company, claiming that Yalla had violated U.S. securities laws. The U.S. court ordered the plaintiffs and their attorneys to file an amended complaint, including the factual basis, supporting their allegations. However, after several months of preparation time, the lead plaintiffs and their attorneys failed to file an amended complaint by the deadline set by the court. Instead, they elected not to pursue this matter any further and voluntarily dismissed the lawsuit on January 12, 2022, agreeing to bear their own litigation costs. Once Yalla agreed to the plaintiffs' dismissal, the following day, the court approved it and terminated the lawsuit. Voluntary dismissal of this kind is rare in the industry. Throughout the process, Yalla maintained that the lawsuit had no factual basis, and this has now been further validated by the plaintiffs and their attorneys' decision to dismiss the lawsuit after several months of…

Hello, everyone. Thanks for joining us today, and thank you very much, Tao, too, for mentioning the Emirati Estesmarat Magazine's Leading Personality of the Year Award in the Digital Entertainment category. I am most grateful to have received this recognition, both for myself and on behalf of the entire Yalla Group. It reflects our passion for digital entertainment and its impact on the region. The MENA entertainment and social networking market is undergoing a vast digital transformation, and Yalla is proud to be a driver of innovation and a source of creativity as we advance the development of the digital world in the region. We will continue to develop our immersive digital social and entertainment ecosystem and provide our users with even more memorable and cherished experiences. Now let's take a look at our operations, as well as our products performances. Operationally, our growth momentum persisted throughout 2021 as we expanded our user community and advanced our monetization capabilities. We are pleased to report a solid full-year of 2021 with the Yalla Group's total revenues increasing 102.4% year-over-year to reach US$273.1 million. Furthermore, 2021 was an important year for Yalla from a product perspective as we continued to rollout products tailored to MENA user's needs and diversify the services and businesses that Yalla covers. Our experienced marketing team implemented innovative, customized campaigns to promote products that resonate deeply with the local culture. As a result, in the fourth quarter, our monthly active users increased 8.1% quarter-over-quarter, reaching 28.1 million. Yalla Group's paying users also increased to 8.4 million as we have begun to launch more new products since the end of the last year. We are proactively working to improve our product launch efficiency to this end, while increasing the budget, we are also adjusting our sales and marketing strategies…

Thank you, Saifi. Hello, everyone. Thank you for joining us. We sustained our steady financial performance in the fourth quarter of 2021, reflecting the strong execution of our users growth strategy and the progress we achieved with our new initiatives. Our fourth quarter revenues grew by 39.7% year-over-year to US$67.6 million, while our non-GAAP net income reached US$27.6 million with a growth rate of 18.2% year-over-year. Notably, we also maintained a non-GAAP net margin of more than 40% in the fourth quarter at 40.8%, while simultaneously accelerating our new business initiatives. We are confident that enhancements to our product portfolio will create future growth opportunities by expanding our user base and revenues, providing a solid foundation for long-term profitability. Now, I would like to walk you through our detailed financials for the fourth quarter of 2021. Our revenues were US$67.6 million in the fourth quarter of 2021, a 39.7% increase from US$48.3 million in the same period last year. The increase was primarily driven by the broadening of Yalla Group’s user base and enhancements to Yalla Group’s monetization capabilities. Our average MAUs increased by 71% from 16.4 million in the fourth quarter of 2020 to 28.1 million in the fourth quarter of 2021. Now let's look at our costs and expenses. Our cost of revenues was US$23.9 million in the fourth quarter of 2021, compared with US$18.4 million in the fourth quarter of 2020. The increase was mainly driven by an increase in commission fees for third-party payment platforms resulting from our expanding business scale, partially offset by lower share-based compensation expenses of US$1.6 million recognized during the fourth quarter of 2021, a 25.7% decrease from US$2.2 million in the fourth quarter of 2020. Excluding share-based compensation expenses, cost of revenues as a percentage of our total revenues remained relatively…

We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Yulin Zhong with Haitong International. You may now go ahead.

Hey. Hello. Thanks management for taking the question. Actually, I got three questions. Number one, could you please share more color on the impact of the current geopolitical conflict, such as the conflict between Russia and Ukraine? Number two, could you elaborate a little bit about your new product pipeline and your expectations for the new Apps on user front and the revenue front? The last one is about the margin, could you help us understand the margin trends going forward especially in this year and your spending plan for this year? Thank you.

Hi. Good morning, Yulin. I would take the first two questions and leave the third one to Karen. For the first question, the geopolitical and macro situation, from a macro perspective, if you are talking about the conflicts, it will certainly affect every economy in the world. Obviously, it will also aggravate market pessimism. At the same time, it will also affect, for example, the rise of energy prices. As an Internet company, we can only passively accept these changes and make adjustments at the enterprise management levels according to the situation at the time. At present, Yalla Group as an online social networking and entertainment community, the impact on us is limited. And for the question number two, for the product pipeline, I can give you a brief recap of our Yalla ecosystem. We have our flagship applications, Yalla and Yalla Ludo, as well as our three casual games; Baloot, 101 Okey Yalla and Yalla Parchis. All three casual game products are now live and are undergoing version iteration, but they are still in the user accumulation phase, and are not yet directly contributing to revenue. Revenue will be our focus in next phase. Turning to our social apps. We have our IM product YallaChat, for which, we launched version 0.3, but we will continue to work on product iteration for YallaChat, and we expect to introduce the next version in Q2. Furthermore, we also recently launched our metaverse social app, WAHA. We hope our users will enjoy this more interactive way of socializing. It will take at least several months to around a year to test whether our users love it or not. That sums up our program with our social apps. One more thing to note, we also expect to distribute two mid-core to hard-core games in the MENA. The first one is an SLG game and we launch as soon as May. As soon as we have updates beyond what we have just mentioned, we will share that information with our investors. And I will leave the question number three for Karen.

Okay. Thank you, Yulin. And about the margin outlook question, I will demonstrate from the following angles. Actually, you can see from our past financial performance, we have been doing an excellent job when optimizing Yalla’s monetization model and the maintaining our strong monetization capabilities. For this year, we believe that our two flagship products will remain their strong monetization capabilities and provide solid cash flow support for the group's development. Also, as I just mentioned, we will be promoting and market testing several new products this year. Expenses in certain areas, such as R&D investments, branding, continuing product portfolio expansion and talent recruitment. Among others, we will certainly put pressure on our profit this year, but we do not expect that the impact to be very particularly significant. Our net margin in 2021 was over 45% and we will expect that expense. I just listed, we all have only a single-digit percentage downwards impact on our net margin. And this impact is entirely within our expectations, and it is something that we have to face in order to achieve further growth. Of course, there’s possibility of bigger moves if business needs arise. So we don't want to rule out about that. However, with that said, I believe that when you compare with our peers, we will still maintain our net margin at a very competitive level. Hope I answered your question. Thank you.

Thank you. That's very helpful.

Our next question comes from Shiqi Ge with CICC. You may now go ahead.

Hi. Thanks management for taking my question. Congrats on another steady and strong quarter. I may have four questions and I'll ask them one-by-one. The first one is, where does the metaverse product WAHA stand, in terms of its development phase? Could management share more about its functions, promotion plans and especially its relationship with the Yalla app?

Hi, Shiqi. Thank you for the question. This is Jeff. So as we mentioned in our remarks, we just launched our metaverse product, WAHA, a brand new independent app. Yalla and WAHA are two different completely separate apps. We developed WAHA based on our understanding that local users want a more interactive social approach, a more intuitive interface and the possibility of personalized expression in the app. Our next step is to operate and promote WAHA independently, so that users have a chance to further validate the product. In terms of a promotion strategy, we will continue to utilize the same traffic acquisition methods as we have in the past. In addition, we will increase our investments in branding based on WAHA's unique product features. Thank you.

Thank you, Jeff. And my second question is how comprehensive are YallaChat functions? What are your major plans for its further development and promotion in your whole Yalla ecosystem?

Hi. Good morning, Shiqi. This is Tao Yang. I have answered this question. We have spent a lot of time developing YallaChat products system and improving its stability. I believe YallaChat can now serve users basic social needs in terms of interacting with each other timely and conveniently. YallaChat basic chat functions already complete and we will continue to improve other user friendly features. In future iterations, we plan to rollout additional functions, tailored to Arabic culture and designed to fulfill Arabic users’ unique needs. We may also add more entertainment content to YallaChat. We expect to introduce our next version in Q2 of this year, and we look forward to sharing more updates on our progress with our investors soon. Thank you, Shiqi.

Thank you. And my third question is as the group's user growth slows down, will there be any changes to the strategy of Yalla and Yalla Ludo? Or what roles should we expect them to play in your future development?

Hi, Shiqi. This is a very good question. Actually, as you can see that our MAUs grew very rapidly last year at around 10% to 15% quarter-over-quarter. Yalla and Ludo will continue to be important parts of our Yalla ecosystem as they have already been tested and validated by both the local market and time. We believe these two products have a long life cycle within enduring vitality and plenty of potential for further growth. We anticipate that user bases will continue to expand and they will maintain their leading positions in the industry. Thank you, Shiqi.

Sure. And the last question is how should we expect the trend of gross margin as Yalla adds more new social and game products? Thank you.

Thank you, Shiqi. Our current product mix, including highly differentiated products targeting different regions. At the same time, each product plays a different role in our product ecosystem. For example, YallaChat is important to help enlarge our user base, while mid-core to hard-core games will be more profit-driven. Therefore, the monetization models of different products are totally different. At this point, it is still difficult to judge the trend of gross profit margin and the net profit margin in the development of new products. If you want to analyze our cost structure, historically, the number has been very stable with commission for the third-party payment channel, such as Apple and Google, which accounting for the largest proportion and technical service fees etc. Generally speaking, our quarterly gross profit margin remains above 65%, and I think we can maintain this level with addition of new products. As for net margin, its main influencers are sales and marketing and R&D expenses. As we just mentioned, these are related to our marketing strategies and product metrics and can be very flexible. Thank you.

Thank you.

Thank you.

Our next question comes from Kaifang with CITIC. You may now go ahead.

Okay. Thank you for taking the question, and I have two questions. The first is about our user growth. So what is our strategy on user growth in 2022 more positive or not? And my second question is about our monetization. So can management share that monetization timetable of our new products, and will they generate a meaningful revenue in 2022? Thanks.

Hi, Kaifang, this is Jeff. I'll be answering your first question. So for the past quarters, we have proved our strong capabilities in expanding our user base. And every quarter, we were able to maintain a growth of around 10% in our MAU. And according to what we have observed at the beginning of 2022, we saw a similar trend as we walk into Q1. In terms of markets capacity, our two flagship products have not yet reached their user acquisition ceilings, and we will continue to invest to further test user potential in those core areas. From a product perspective, we plan to launch multiple new products. We will also dynamically adjust our marketing direction and budget based on product performance to maximize user growth. We hope to create a more active, larger Yalla community at a group level and build more valuable user engagement. As traffic costs continues to increase worldwide and given that we have a growing number of products to launch and promote this year, we expect to increase our sales and marketing budget. We are also adjusting our marketing strategy to improve efficiency. We will expand our marketing investment in gulf countries to better penetrate the users here and at the same time, we will seize each and every opportunity to gain users in Pan-Arab region too. This will help us improve the efficiency of our user acquisition plan. Furthermore, in addition to buying traffic directly from Facebook and Google, we are also exploring new sales and marketing channels, which may help us reduce our marketing expenses in the future. While increasing traffic cost is an issue for all companies, but as a leader in MENA’s digital internet market, Yalla enjoys the first-mover advantages, and we believe that as we continue to optimize our marketing strategy, we will be able to solidify and strengthen our leading position in the market. Thank you.

Hi. Good morning, Kaifang. And for the second question, I will be answering. For all of our new entertainment and social networking apps as well as our community-based board and card games, there is always a user accumulation stage. We will focus more on user growth and community operation this year. Monetization is something we will consider during the next stage. If our mid and hard-core games perform well in their targeted countries, then we believe they will be able to generate revenue relatively quickly this year given the monetization pattern of mid-and hard-core games. I hope I answered your question good. Thank you.

Okay. Thank you. That's very helpful.

Our last question comes from Zemin with Southwest. You may now go ahead.

Okay. Thank you. Thanks management for taking my question also for the outstanding growth and performance. I have two questions for the product about the Yalla and other growth statistic. This is the first question, how is Yalla's middle platform coming along? Any plans for driving traffic from one business to another? And this is the question two, could you please share updates on Yalla's active users – daily active users average time spent? How often do YallaChat users open the app per day? Thank you.

Thank you, Zemin. I will be answering these two questions. In terms of our – the first question is about the middle platform. In terms of our middle platform, we now have various products. We have organized different teams, specializing in various technical and data solutions, etc., to serve all the products teams. In this way, we're able to improve the efficiency with which we developed new products. At the same time, sharing data among the different product teams helps us learn more effectively about our users. But of course, we don't want to compromise on flexibility, different products have their own characteristics. And sometimes the shared middle platform may not be able to design the best solution for each individual app. So we will evaluate the situation and decide whether or not the middle platform is the most suitable means to develop a certain aspect of any product. In addition, we have also noticed that some Internet companies have started to remove their company's middle platform. We have always been keen to follow the industry's best and most scientific practices, and aim to continue to optimize Yalla’s organizational structure. Regarding driving traffic from one app to another, yes, we have been planning this for a long time and we have already completed the preparation work within our different apps. As we launch and promote our new product this year, you'll start to see, for example, entrances in Yalla Ludo to our new SLG game, or from Yalla to our metaverse social app, WAHA. This is an important move to boost synergies among the Yalla ecosystem and we will definitely be leveraging the existing user communities that we have built over the past five years. And for the second question about the daily average time spent. At the time of our IPO, we shared that the daily average time spent on Yalla app was 4.5 hours. And now, it has exceeded 5 hours. So we think this is already at a very impressive level. And everyone knows there are only 24 hours in a day. We don't want to give you aggressive expectation on the further growth of this metric. And in terms of your question regarding YallaChat, we will share those metrics with you after we officially launch YallaChat this year, as the metrics at that time maybe more meaningful and can be a better reference for you.

Thank you.

Thank you, Zemin.

As there are no further questions, now I'd like to turn the call back over to management for closing remarks.

Thank you once again for joining us today. We look forward to speaking with you in the next quarter. If you have any further questions, please feel free to contact Yalla’s Investor Relations through the contact information provided on our website or The Piacente Group Investor Relations. Thanks you.

This concludes this conference call. You may now disconnect your line. Thank you.